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Things may not be quite as bad as the Onion News Network portrays, but its report sure fingers the problem -- as we'll explore in a moment, below.
Let's see now, why was it we were told we had to "right now, no questions asked or answered, trust us" give billions of taxpayer dollars to some of America's largest banks and their wealthy executives? Oh, yeah, the suggestion was pretty heavy that ordinary taxpayers weren't sophisticated enough to really understand, which is why we had to leave the solutions to the guys who created the problem -- guys who tend to rotate back and forth between Wall Street and the Treasury Department.
But for those of us who insisted on more explanation, we were told that this gift was necessary in order to get the banks to abandon their blackmail threat ("give us $700 billion right now or we won't loan money any more") and start loaning money again, restructuring mortgages to enable those who would otherwise become homeless to stay in their homes, creation of more jobs, and the increased buying consumers would do once credit became available. And the point was always stressed that the goal was not to help banks on Wall Street but the consumers on Main Street.
So it's been a few months. What are the results?
Have the banks increased their loan operations? Well, no, not really; in fact they've cut back further, drying up more credit, than they did before they got our money. Meanwhile, they've helped themselves to another pot of gold that has received very little attention from the media. [Endnote 1.]
So how about the foreclosures, are there fewer? Well, no, not actually; there have been 24% more foreclosures this quarter than a year ago. And what about President Obama's plan to forestall foreclosures? The banks have decided that it was a program only designed to keep people in their homes over the winter, when their adverse publicity is the worst as a result of evicting families into the snow. Now that spring is here they're back to evicting people big time. [Endnote 2.]
At least I hope we have had a dip in the number of those who are still receiving unemployment. Hope again; it's more like a cyst than a bubble. After the bank bailouts, what are called "continuous jobless claims" have now escalated to what are the highest levels in American recorded history. [Endnote 3.]
But then I guess at least consumer purchasing must have turned around, right? Wrong. Consumer purchasing declined even further from February to March. [Endnote 4.]
Golly, I'm beginning to feel sorry for those big banks; these must be really tough times for them. Not quite; they're having some very profitable quarters. [Endnote 5.]
Kind of looks like "three strikes you're out," huh? Wrong again; it looks like the bankers will be coming back to the Treasury and Congress asking for an extension on what they consider a very successful "bailout billions for bankers" program. And so long as they continue to be willing to give back in campaign contributions a small share of what Congress gives them, as a token of their appreciation (in what the two major parties have called their "give a million, get a billion" outreach programs), it looks like there may be even more billions coming their way. [Endnote 6.]
To further sweeten the kitty, the Onion News Network is reporting, the Treasury is now recalling all currency still possessed by American citizens:
Treasury Department Issues Emergency Recall Of All US Dollars
Would anyone care for a cup of tea?
1. "Lending by the nation's largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October with the financial crisis, according to data published yesterday by the Treasury Department. The 21 banks in the survey have received more than $211 billion in federal funding to support new lending with the aim of stimulating the economy. The money has not accomplished its purpose. The banks reported a 24 percent decline in the dollar value of business lending . . .." Binyamin Appelbaum, "Lending by Bailout Recipients Falls Again," Washington Post, April 16, 2009.
"Demand for commercial and industrial loans was weak, and there were several reports that business borrowers were postponing capital expenditures." "Banking and Finance," U.S. Federal Reserve April Beige Book Summary, Bloomberg, April 15, 2009. ["The nation's major banks, concerned about their own deteriorating finances, are making fewer loans to corporations. By cutting back on loans that companies use to buy other concerns, build factories and develop products, the lending slowdown weakens the national economy and could precipitate or lengthen a recession that many economists say has already begun. Michael Quint, "Banks Cut Business Lending, Hurting Weakened Economy," New York Times, October 16, 2008.]
"Goldman Sachs . . . is quietly holding on to other forms of public support that come with virtually no strings attached. Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation. . . . [G]iven the huge amounts of debt issued by Goldman, JPMorgan Chase and Morgan Stanley alone, any major collapse could breach the F.D.I.C.’s reserves. The agency has asked Congress for authority to borrow more money from the Treasury in case of an emergency." Louise Story, "U.S. Program Lends a Hand to Banks, Quietly," New York Times, April 14, 2009.
2. "[F]oreclosures surged in the first quarter, according to reports released on Thursday. . . . James J. Saccacio, chief executive of RealtyTrac, said . . . that foreclosures would probably increase over the next months as temporary halts to foreclosures expired at banks . . .." Jack Healy, "No End Yet for Downturn in Housing, New Data Suggest," New York Times, April 16, 2009; "U.S. foreclosure filings rose to a record in the first quarter as . . . temporary programs to delay action on defaults came to an end." Dan Levy, "Foreclosure Filings in U.S. Climbed to Record in First Quarter," Bloomberg, April 16, 2009.
3. "Continuing jobless claims rose to 6 million for the week ending April 4, an increase of more than 100 percent from the same time last year." Ibid.; "The total number of people remaining on the jobless benefit rolls . . . [is now] topping 6 million for the first time . That's the highest on records dating from 1967." Christopher S. Rugaber, "Jobless Claims Top 6M; Housing Starts Plummet," Associated Press Mobile News Network [an iPhone app], April 16, 2009.
4. It turns out that what consumers need to increase their spending is more cash, not more credit! "The Rockefeller Institute of Government recently released a report . . . indicating that the [states'] sales tax decline in late 2008 was the worst in 50 years . . . because sales to consumers have fallen — a spending decline that has been unusually steep by historical standards." Catherine Rampell, "Comparing This Recession to Previous Ones: Retail Sales," New York Times, April 16, 2009;
"Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s dead wrong. Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes – courtesy of the Fed flooding the market with so much money mortgage rates are dropping – consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009.
5. "J.P. Morgan Chase this morning reported first-quarter earnings of $2.1 billion, as it profited from the availability of cheap funding from depositors and the federal government. The results offered the latest indication that some banks are beginning to overcome the weight of massive losses on their outstanding loans, following reports of first-quarter profits from Goldman Sachs and Wells Fargo." Binyamin Appelbaum, "J.P. Morgan Chase Reports Strong 1Q Earnings," Washington Post, April 16, 2009.
6. "With only $110 billion remaining in the TARP bailout fund, all signs are that Tim Geithner is preparing to return to Congress seeking more bailout money. . . . Congress won’t be happy but in the end it will cough up another 300 to 500 billion." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009.
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
